Big banking groups and private equity houses are expected to pay out billions of pounds in bonuses to their employees as earnings season fast approaches.
Banks like NatWest Group PLC (LSE:NWG), Barclays PLC (LSE:BARC), HSBC PLC (LSE:HSBA) and Lloyds Banking Group PLC (LSE:LLOY), and PE firms like The Blackstone Group (NYSE:BX) and The Carlyle Group, have each enjoyed the tailwinds of a highly buoyant financial system through 2021, as strong loan-based liquidity joined loose monetary policy to see investment and deal-making skyrocket.
For banking groups, cash reserves have ballooned on less-than-expected impairment rates from bad loans as a result of mass payouts through initiatives like the Coronavirus Business Interruption Loan Scheme.
Banks are accordingly expected to announce total profits of £34bn over the next two weeks of earnings season.
Bonuses will reflect that growth, and are expected to total nearly £300mln this year, a 45% increase on last year’s figure, the Mail on Sunday reported.
Barclays is expected to pay out £2bn in bonuses, HSBC is set to pay out £2.65bn to its employees, while Lloyds is also expected to return to bonuses after cancelling them last year, with £2bn a possible figure as it is set for its largest profits in a decade.
Bumper bonuses also reflect some optimism for the future, with increases to banks’ net interest margin implied by recent and further impending Bank of England rate rises, meaning confidence in bank balance sheets is reaching highs not seen in some time.
But the PE market is expected to make bonuses paid by banks look modest by comparison.
Blackstone, KKR and Carlyle Group had earmarked £2mln in pay and benefits per employee in 2021, according to calculations by the Financial Times, as a result of huge buyout rates and corresponding rates of uncarried interest.
The contrast is a result of more unregulated systems put in place by PE firms, where there is not the same requirement for staff to work in areas like compliance and bank-end office, unlike those in traditional banks and investment banks.
The FT calculated that Blackstone had a market value per employee of around $39mln, compared to Goldman Sachs (NYSE:GS)’ figure of £32mln.